Economic dimensions of globalization

Steger, Globalization, chap. 3

Chap 3 China in the global economy Today’s lecture: Economic dimensions of globalization � Reading: Steger, Globalization, chap. 3 “The economic

dimension of globalization.” Feb. 20 Tues. lecture: China’s workforce � Reading: Jenny Chan, Ngai Pun, and Mark Selden,

“The politics of global production: Apple, Foxconn and China’s new working class.” japanfocus.org (2013)

Feb. 22 Thurs. lecture: China’s energy policy � Reading: John Mathews and Hao Tan, “China’s

continuing renewable energy revolution: global implications.” japanfocus.org (2013)

Wed. Feb 28 Recitation Chap. 3 response paper due Tues. Feb. 27 @ 10:00PM

Steger’s Globalization, so far: Chap. 1 Globalization: a contested concept � Presents a theory of globalization Chap.2 Globalization in history: is globalization a new phenomenon? � Presents a history or chronology of

globalization

Steger’s Globalization, ahead: Today: Chap. 3 Economic dimension of globalization � Presents a theory of the global economy In two weeks: Chap. 4 Political dimension of globalization � Presents a theory of political globalization

Electronic devices OFF

Steger: Economic Globalization

Dramatic changes have occurred in finance, economic production, and movement of commodities, due in part to new technologies related to the Internet.

Economic Globalization

Gigantic f lows of capital mediated by digital technology have increased trade in goods and services, linking national and regional economies

Globalization is multi-dimensional

Interconnections in the global economy are set in motion by political decisions � The global economy is based on an

interaction with politics and many other dimensions of globalization

21st c. Global economy The contemporary global economy is best described as a neoliberal economic system working in competition with regulation of trade and f lows of capital motivated by national, regional, or justice concerns � Nexus: Neoliberal deregulation <->

Keynesian regulation

Globalization is at the nexus of dichotomies

Global International

“West”

Local National “Rest”

The global economy is also a nexus

Neoliberal Deregulation

Keynesian & Other

Regulation

Major building blocks of 21st c. global economic order: 1. Huge transnational corporations (TNCs) or

multinationals 2. Powerful international economic institutions 3. Large regional trading networks

� APEC Asian Pacific Economic Cooperation � EU European Union � [TPP TransPacific Partnership]

FYI: Multinationals vs. TNCs We tend to read the following terms and think they refer to any company doing business in another country. Each term is distinct and has a specific meaning which define the scope and degree of interaction with their operations outside of their “home” country.

1. International companies are importers and exporters, they have no investment outside of their home country.

2. Multinational companies have investment in other countries, but do not have coordinated product offerings in each country. More focused on adapting their products and service to each individual local market.

3. Global companies have invested and are present in many countries. They market their products through the use of the same coordinated image/brand in all markets. Generally one corporate office that is responsible for global strategy. Emphasis on volume, cost management and efficiency.

4. Transnational companies are much more complex organizations. They have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market.

https://leeiwan.wordpress.com/2007/06/18/difference-between-a-global-transnational- international-and-multinational-company/

Origins of the contemporary global economic order

Bretton Woods, New Hampshire, July 1-22, 1944

Neoliberal vs. Keynesian Economics � Neoliberalism is based on idea of British

philosophers Adam Smith (1723-90) and David Ricardo (1772-1823) that unregulated markets are most efficient, because of the principle of supply and demand

� Keynesianism is based on idea of British economist John Maynard Keynes (1883- 1946) that a healthy economy requires regulation

Neoliberalism � Advocates elimination of all barriers to trade

and capital f lows between nations � Includes idea of British sociologist Herbert

Spencer (1820-1903) that free market economies naturally survive because they are the fittest � Economic Darwinism

Bretton Woods: gold standard Pegged national currencies to fixed gold value of US dollar, creating a stable money exchange system

Bretton Woods system (1945-75), Established basis for ‘golden age of controlled capitalism’ � Nations paid for education, healthcare, and

infrastructure with tax revenue � Workers in global North joined the ‘middle

class’ due to rising wages

Why did Bretton Woods collapse?

Steger: “In the early 1970s, the Bretton Woods

system collapsed when President Richard

Nixon abandoned the gold-based fixed rate

system in response to profound political

changes in the world that were undermining

the economic competitiveness of US-based

industries.” (p. 40)

Reason: Japan’s rising economy

U.S. Industries unable to compete: � Steel � Ship building � Watches � TVs � Automobile � Textiles

1971: Nixon abandoned gold standard

� Currency exchange rates have f loated freely ever since.

Free-floating interest rates

� Up to 1970s: USD-Yen fixed exchange rate $1.00=¥368

� Current: USD-Yen f loating exchange rate $1.00=¥107

Discussion 1. Have you or your family ever been affected

by f luctuations in exchange rates between one currency and another? � If so, were you affected positively or

negatively? 2. Do you think it would be better to go back

to having a fixed exchange rate pegged to the gold standard? � Why or why not?

Fort Knox, Kentucky

Gold reserves: 147.3 million oz.

Fed Reserve Bank: “just in case”

1971: Nixon abandoned gold standard Result was global economic instability

� High inf lation, high interest rates � Low economic growth � High unemployment � High public sector deficits � High energy costs

1971: Nixon abandoned gold standard

Global economic instability further resulted in election defeats for parties associated with controlled capitalism � Victories for conservative political parties

that advocated deregulation and free markets: “neoliberal” approach to economic and social policy

� Deregulation seemed legitimized by collapse of communism 1989-91

Deregulation & infrastructure Deregulation (liberalization) of financial markets required new hardware infrastructure to support ‘virtual’ internet technologies that linked the globe � “Nervous system” of internet-based

technologies � Fiber-optic cable � Satellite systems

1980s The concept of globalization became linked to the deregulation of economies around the world � Deregulation reached a turning point in

2008 with Global Financial Crisis

Problems in Global Financial Markets A large part of new global financial exchange has nothing to do with real production. � Little investing in machinery or workers to

produce saleable items Regulations were restored after the GFC, but now they’re being dropped again.

The result: financial instability and social upheaval

World’s financial systems are volatile, overly competitive, insecure � Artificial boom-and-bust cycles have endangered the

social welfare of whole regions of the globe � South-East Asia 1997-98 � Argentina 1999-2002 � Greece, Spain � Brazil � UK Brexit

Geography: Northern & Southern Hemispheres

Geography: Eastern & Western Hemispheres

Geography: Eastern & Western Hemispheres

Political Economy: Global North- Global South

Global South-South Cooperation

Transnational corporations TNCs “None of these corporations maintains headquarters outside North America, Mexico, Europe, China, Japan, and South Korea. This geographical concentration ref lects existing asymmetrical power relations between the North and the South.” (p. 53) (Implies that Mexica & China are now included in the Global North, with developed economies)

Transnational Corporations � TNCs match nation-states in economic

power

� Chart: p. 55

Transnational Corporations Economic globalization is sometimes criticized as ‘corporate globalization’, because TNCs are interested only in making a profit for their investors

� TNCs have none of the responsibilities that nation-states have to their citizens

Bretton Woods: created new international economic institutions 1. International Monetary Fund (IMF)

� Administered the international monetary system 2. International Bank for Reconstruction and

Development (now, World Bank) � Provided loans for Europe’s post-war reconstruction � Funded industrial projects in developing countries

3. General Agreement on Tariffs and Trade (GATT); changed 1995 to World Trade Organization (WTO) � Created and enforced multilateral trade agreements

Economic globalization since 1989 1. Greater internationalization of trade and finance 2. Increasing power of transnational corporations

TNCs and large investment banks 3. Enhanced role of international economic

institutions (seems to contradict neoliberal free market ideology) ¡ International Monetary Fund (IMF) ¡ World Bank ¡ World Trade Organization (WTO)